Another Budget Deal Bites the Dust

r. Mark W. Hendrickson is an adjunct faculty member, economist, and fellow for economic and social policy with The Center for Vision & Values at Grove City College.

Back in September I wrote about our “ethically challenged” democratic system. I said, “We are caught in a downward, self-destructive [debt] spiral.”

If you doubted me then, those doubts should have been exploded last week. Congressional leaders agreed to increase federal spending by nearly $300 billion above the already-rising limits stipulated by the Budget Control Act of 2011, and President Donald Trump signed the deal into law last Friday morning.

We’ve seen this picture before: Congress and the White House feel a twinge of conscience, enact a law to end deficit spending, and struggle to adhere to it for a few years. Inevitably, though, political pressures to spend more become too great, the floodgates of federal spending are opened wider, and the anti-deficit law is swept away.

Following are several earlier versions of this process:

1) Congress passed Public Law #95-435, The Bretton Woods Agreement Act, on October 10, 1978. Intended originally to amend the U.S. Treasury’s collaborations with the International Monetary Fund, Congress added Section 7. It explicitly states, “Beginning with fiscal year 1981, the total budget outlays of the Federal Government shall not exceed its receipts.” Voilà! End of deficits, right? Alas, if only… The actual federal government deficit for FY 1981 was nearly $79 billion. That was the last year until 1997 that the federal deficit was less than $100 billion.

2) Congress tried to legislate itself into fiscal responsibility again in the mid-1980s. It passed the verbosely named “Gramm-Rudman-Hollings Balance Budget and Emergency Deficit Control Act of 1985,” followed by the “Balance Budget and Emergency Deficit Control Reaffirmation Act of 1987.” As already noted, those long-abandoned laws never succeeded in getting annual federal deficits below $100 billion.

3) The Omnibus Budget Reconciliation Act of 1993 (alternatively known as the “Deficit Reduction Act of 1993”) is sometimes given credit for the four-year interlude from red ink in FYs 1998-2001. (Actually, there were only two small on-budget surpluses in those years. In the other two years, the “surplus” appeared only by adding the Social Security surplus to the regular federal budget.) However, it wasn’t the 1993 act that achieved a short-lived reprieve from massive deficits. Instead, it was a one-time, never-to-be-repeated “perfect storm” of confluent events that I have explained elsewhere.

4) Another anti-deficit law was the plainly labeled Deficit Reduction Act of 2005. Although the federal deficit did decrease for three years after the passage of this law, bottoming out at $160 billion in FY 2007, the financial crisis that started that year blew that law to smithereens as federal spending and deficits skyrocketed to as high as $1.4 trillion in FY 2009 (the year of the Obama “stimulus” plan).

5) The 2011 law that last week’s law supersedes did not even pretend to be working toward a balanced budget. It had the more modest goal of reducing annual deficits. Yes, the growth of federal spending slowed for a few years after FY 2011, and with the slow but steady economic recovery, federal revenues increased enough to reduce deficits. The deficit bottomed out at $438 billion in FY 2015. Now, with last week’s law, both parties have consented to burgeoning deficits that could soon approach $1 trillion again.

The lessons are clear:

First, no law, or even constitution, has the power to thwart the will of a people who don’t want to abide by that law.

Second, the political reality is that deficits are here to stay—at least, unless the financial system (and possibly the political system) blow up from the accumulating financial stress, although as hyper-indebted Japan has shown, such an absurd situation can persist for a surprisingly long time.

Third, neither of the two major parties can be counted on for fiscal responsibility. Democrats believe that the government should oversee economic activity, and so there is no limit to what they want to spend. Some Republicans understand there are economic and ethical reasons for limiting government spending, but ever since the Nixon presidency over 40 years ago, they’ve learned that the American electorate has no stomach for “austerity” or “belt-tightening.” Thus, when push comes to shove, their political survival instinct kicks in and enough Republicans will cave to public pressure and give the voters what they want—more spending and the large deficits that go with it.

Given those partisan dynamics, red ink is here to stay and the mountain of national debt will continue to grow.